This year may well be remembered for the remarkable decline of the S&P 500 from a high of around 3,397 at the end of February to the low around 2181 near the end of March. The markets were in free fall and fear abounded. The Fed reaction was to announce unlimited QE on the 23 March to help the markets. This was the signal that the markets needed and the S&P 500 finally found support.

Of note was last weeks CPI numbers coming out of the US, with core CPI printing at -0.4%. This was lower than the forecast of -0.2. This is deflationary and will clearly be of a concern to the Fed as negative inflation makes monetary policy implementation more complex. In this regard, the Fed will be desperate to move out of deflation and back into an inflationary cycle. To this end all eyes are on QE, which is increasing the supply of dollars that should devaluing the currency. If all goes to plan, this, in of itself, should stimulate inflation.

Initially the dollar did fall on the announcement. However, general fear has to a large extent supported it. This may be coming to an end, as the greenback has now seemingly started to capitulate.

USDOLLAR Break Down Out Of Flag Pattern

The above chart shows the daily time frame of the USDOLLAR. Of note is the breakdown from the flag pattern (green parallel lines). Price has moved down just as the RSI switched to the bearish side of 50 (blue rectangle). This denotes that an underlying bearish momentum is building. This is consistent with the increase in supply of dollars from the Fed’s QE programme. If the greenback continues to fall than QE is winning out over market fear. If this is the case it may very well support the risk side of the market and continue to apply to pressure to the USDOLLAR.